Lining Up Money

Howard Rohleder

EARLY LAST YEAR, just as the pandemic was starting, we were looking to buy a new home in an area where houses sold quickly—but we feared selling our existing home would be far slower. In addition, home prices in the new area were substantially higher.

We had no first mortgage on our existing house and no desire to take one out for the new home. Still, we wanted to strike quickly if we found the right place to buy, and that would mean coming up with cash at short notice. I began to consider which investments to sell. Problem is, selling would mean triggering taxes and potentially missing out on investment gains, so we wanted to limit the amount of investments we sold—which we did by borrowing the maximum possible on our HELOC, or home equity line of credit.

HELOCs can play a crucial role as part of a family’s emergency plan. But they can also be used to transfer equity from your current home to a new house. We had a 10-year line of credit as an emergency source of funds. We hadn’t tapped the HELOC during the first nine years we had it. But last year, it was the emergency cash we needed—even if we weren’t facing a true emergency.

By borrowing the full amount allowed by the credit line, we reduced the amount of investments we had to sell. It worked like a charm: We were able to buy the new house for cash. Our investments continued to grow, while we paid minimal interest on the borrowing. As soon as our old home sold, we repaid the loan.

Intrigued by our strategy? Make sure you apply for the HELOC while you still have a paycheck coming in—because you’re far more likely to be approved.

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